EMEA Morning Briefing : Stock Futures Lower as Fed Cut Hopes Weaken

MARKET WRAPS

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Italy retail sales; trading updates from H&M, Berkeley Group

Opening Call:

European stock futures fell, tracking Asian equities lower as inflation data pushed back hopes for how soon Fed cuts could come. The dollar strengthened; Treasury yields steadied; while oil futures declined and gold rose.

Equities:

Stock futures fell early Friday as investor hopes ebbed for imminent rate cuts by the Federal Reserve following hotter-than-expected U.S. PPI data.

Investors have been scrutinizing the path of inflation as they try to anticipate when the Fed will begin to cut interest rates. Fed Chair Jerome Powell has said the central bank wants to be more confident that inflation is returning to its 2% target.

"From a central banker's perspective, the worst thing you can do is have the economy take a lot of medicine in terms of higher interest rates to get inflation under control and then cut rates too early, before you've really seen inflation come down materially to a level where you're confident that it will continue to be low and move lower," said Sinead Colton Grant, chief investment officer at BNY Mellon Wealth Management.

Forex:

The dollar strengthened in Asia amid fading Fed rate-cut bets. U.S. PPI data released overnight has resulted in the markets trimming odds of the Fed lowering rates in June, said Michael Wan, senior currency analyst at MUFG Bank.

The Fed will update its dot plot and economic projections at the March meeting, and it'll be interesting to find out what message the Fed opts to send to markets about the path forward, Wan added.

Bonds:

Markets are optimistic about the U.S. economy, boosting risk sentiment and driving yield-hungry investors into the U.S. corporate-bond market, BlackRock said.

Market expectations of a first Fed rate cut have shifted from March at the start of 2024 to July currently, Refinitiv data show, but the shift has "not hindered broad risk sentiment," BlackRock said. Demand for U.S. investment-grade and high-yield credit has remained strong even with increased corporate bond supply, it added.

Energy:

Oil futures edged lower in Asia after prices rallied overnight on the International Energy Agency lifting its forecast for oil demand growth this year.

However, downside risks hinge on China's demand, which is likely to remain subdued through the rest of the year, said Vivek Dhar, analyst at Commonwealth Bank of Australia. He forecasts Brent futures to fall to $75/bbl-$80/bbl through 2H 2024.

Metals:

Gold prices have surged to record highs in recent weeks, driven by geopolitical tensions, hopes for rate cuts, and a spike in algorithm-driven trading.

"We know that China is increasing gold purchases amid rising tensions with the U.S. and its property crisis, [and] other emerging market central banks are also diversifying away from the dollar," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, told Dow Jones Newswires.

Though the underlying outlook appears supportive, gold's large gains over the last few weeks in particular appear to be mostly driven by technical factors, according to John Reade, chief market strategist at the World Gold Council.

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Copper rose amid potential signs of production caps in China. ANZ noted news reports saying that the China Nonferrous Metals Industry Association has pledged to control copper capacity as lower processing fees spur supply, and to delay new projects, which could tighten refined copper production. However, it stopped short of pledging production cuts, Westpac said, which could cap price gains.

TODAY'S TOP HEADLINES

Options trades to exceed stocks for first time since 2021 as $5 trillion in contracts come due Friday

Options tied to more than $5 trillion in stocks, exchange-traded funds and equity indexes are set to expire Friday during the quarterly triple witching - when a welter of monthly contracts are set to expire alongside index futures.

Index options with a notional value of $3.2 trillion will expire at the open, with the vast majority of those contracts linked to the S&P 500. After that, $1.9 trillion in options chiefly tied to single stocks and index-tracking exchange-traded funds will expire at the close, according to data provided by Asym 500.

Corporate defaults are happening at fastest pace since financial crisis, according to S&P

Companies around the world are defaulting on their debt at the fastest pace since the global financial crisis as high interest rates and stubborn inflation continue to take their toll, according to a report from S&P Global Ratings.

According to S&P, the number of corporate defaults has climbed to 29 since the start of the year, the most highest tally at this point in a year since 2009. While the majority of defaults occurred in the U.S., an uptick in European bankruptcies is alarming analysts.

Swiss Private Bank EFG to Settle U.S. Sanctions Violations

EFG International agreed to pay about $3.7 million to settle allegations the Swiss private bank violated U.S. sanctions by holding and investing securities on behalf of blacklisted individuals, the U.S. Treasury Department said.

Between 2014 and 2018, Zurich-based EFG allegedly processed 868 securities transactions for customers in Cuba and for a Chinese national blacklisted for foreign narcotics trafficking, Treasury's Office of Foreign Assets Control said Thursday. EFG, which has around 40 global subsidiaries, also processed five dividend payments in 2023 for another person blocked under sanctions imposed over Russia's anti-democratic activities abroad. The U.S. has a comprehensive economic embargo on Cuba.

China Signals Opposition to Forced Sale of TikTok in the U.S.

SINGAPORE-The Chinese government is signaling that it won't allow a forced sale of TikTok, limiting options for the app's owners as buyers begin lining up to bid for its U.S. operations.

Chinese officials have criticized the U.S. for its moves targeting the short-video-sharing app. They have also sent signals to TikTok's owner, Beijing-based ByteDance, that company executives have interpreted as meaning the government would rather the app be banned in the U.S. than be sold, according to people familiar with the matter.

Cockpit Mishap Seen as Likely Cause of Plunge on Latam Boeing 787

A cockpit seat mishap might have pushed a pilot into the controls on a Boeing 787 Dreamliner that took a sudden, terrifying plunge on a flight to New Zealand this week, according to U.S. industry officials briefed on preliminary evidence from an investigation of the incident.

A Latam Airlines flight attendant hit a switch on the pilot's seat while serving a meal, leading a motorized feature to push the pilot into the controls and push down the plane's nose, these officials said. The switch has a cover and isn't supposed to be used when a pilot is in the seat.

Steven Mnuchin Says He Is Putting Together a Group to Buy TikTok

Former Treasury Secretary Steven Mnuchin said he's putting together a consortium to try to buy TikTok, as a bid to divorce the popular social-media platform from its Chinese owners gathers momentum in Congress.

Mnuchin, who has long crusaded against Chinese ownership of the app, didn't specify how he might buy the business, which could be valued at more than $100 billion. But his comments show that should there be a forced sale, interest would likely be high in a platform that boasts more than 170 million U.S. users.

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Expected Major Events for Friday

05:30/NED: Jan International trade

07:00/NOR: Feb External trade in goods

07:00/SWE: Feb Labour Force Survey

07:00/ROM: 4Q Employment and unemployment

07:45/FRA: Feb CPI

08:00/CZE: Jan Industry, Construction

08:00/SVK: Feb Core & net inflation development

08:00/SVK: Feb CPI

09:00/POL: Feb CPI

09:00/CZE: 4Q Quarterly Balance of Payments

09:00/ITA: Feb CPI

09:00/CZE: Jan Monthly Balance of Payments

09:30/UK: Feb Bank of England/Ipsos Inflation Attitudes Survey

09:30/UK: 4Q Bank of England statistics on UK banks' external claims

10:00/ITA: Jan Retail Sales

10:00/CRO: Feb CPI

10:00/CYP: Feb Harmonised CPI

11:00/IRL: Jan Goods Exports and Imports

11:00/ITA: Jan Foreign Trade EU

13:00/POL: Jan Balance of Payments

15:59/UKR: Jan Trade

All times in GMT. Powered by Onclusive and Dow Jones.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

03-15-24 0118ET